Cupid's Invisible Hand: Social Surplus and Identification in Matching Models
Salanie
Bernard
author
Columbia University. Economics
Galichon
Alfred
author
Columbia University. Economics
originator
contributor
text
Working papers
New York
Department of Economics, Columbia University
2011
We investigate a matching game with transferable utility when some of the characteristics of the players are unobservable to the analyst. We allow for a wide class of distributions of unobserved heterogeneity, subject only to a separability assumption that generalizes Choo and Siow (2006). We first show that the stable matching maximizes a social gain function that trades of two terms. The first term is simply the average surplus due to the observable characteristics; and the second one can be interpreted as a generalized entropy function that reflects the impact of the unobserved characteristics. We use this result to derive simple closed-form formulæ that identify the joint surplus in every possible match and the equilibrium utilities of all participants, given any known distribution of unobserved heterogeneity. Moreover, we show that if transfers are observed, then the pre-transfer utilities of both partners are also identified. We conclude by discussing some empirical approaches suggested by these results for the study of marriage markets, hedonic prices, and the market for CEOs.
Economic theory
Department of Economics Discussion Papers
1011-03
http://hdl.handle.net/10022/AC:P:10478
English
NNC
NNC
2011-06-01 15:14:23 -0400
2011-08-02 13:17:42 -0400
4393
eng